CEZ Dividend Delay Shows Management’s Political Savvy

Czech Power company CEZ AS is skilled in hedging its exposure to foreign exchange risks as well as to carbon emission burdens.

Management at the 70% Czech state-owned utility is now displaying its panache for hedging political and job security risks as well.

Leading Czech politicians have an audience with President Klaus.

Being a state-run enterprise, executive positions are largely political appointments, and those appointments can be recalled if politicians deem that the state-owned cash cow isn’t giving the political parties a big enough slice of its dividend pie.

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The current management’s bargaining chip in keeping their jobs after May general elections is ensuring the winner of the election has a say in how profits are used.

At stake is over a billion dollars worth of dividends from CEZ’s record profits in 2009, and politicians who are now campaigning for the country’s general elections all want a hand in divvying up the profits.

Specifically, CEZ was slated to propose its dividend in May, as the company routinely does, but this year CEZ is delaying its dividend-setting shareholder meeting till after the elections, most likely till June 29 according to a person familiar with the matter.

Speaking strictly off the record, some CEZ insiders admitted the delay to the dividend decision is politically driven.

Some Czech politicians have been calling for the power company to boost its dividend payouts to help shore up the country’s budget, while others are looking to CEZ profits to fund populist political promises such as cash handouts to the electorate.

Such calls have turned the dividend decision into a politically charged issue.

CEZ hasn’t said what dividend it plans to pay from its record 2009 net profit of 51.55 billion koruna ($2.71 billion), but its policy is to pay between 50% and 60% of profit as dividends. Analysts expect the dividend to be about CZK55 a share, up from CZK50 in 2008.

Between 2009 and 2006 CEZ set its ex-dividend days no later than May 23.

On May 28 and 29 Czechs will elect a new government and new prime minister. The incoming government, in addition to influencing the dividend policy, also will decide whether current CEZ executives will keep their jobs after the elections.

Normally a general election could be largely overlooked by CEZ management, but over the last nine months the company and in turn its managers have come under intense media, regulatory and even police scrutiny regarding a string of blunders that no politicians want to be associated with.

Most recently it was revealed the electricity company trained a pseudo-military unit to root out alleged electricity theft. Late last year the European Commission raided CEZ’s headquarters looking for evidence the company may have manipulated electricity and coal markets. Both of these embarrassments came after a major publicity blunder last summer involving CEZ head Martin Roman, politicians and lobbyists.

Last July Roman was photographed aboard a yacht in Tuscany, Italy, along with former prime minister Mirek Topolanek, former industry ministry Milan Urban, and a host of other political players in what most of the Czech population took to be covert meetings, highlighting the clubby relationship between Czech political and business elite.

The club rules informally state that whoever runs CEZ is obliged to give room to the leading Czech politician to oversee the company’s dividend plans.

By delaying the dividend call, Martin Roman is showing he knows the rules of the game.

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Emerging Europe Real Time provides sharp analysis and insight into what’s making news in Central and Eastern Europe. Drawing on the expertise of our reporters in the Czech Republic, Hungary, Poland, Russia and Turkey, the site provides an inside track on economics, politics and business in this emerging part of the European continent.